Inflation, dollar woes hit Asian shares

Nikkei, Kospi slump; Shanghai shares buck downtrend

ChrisOliver

HONG KONG (MarketWatch) -- Asian share markets ended deep in the red Monday on concern that record commodity prices and a weakening U.S. dollar will fan inflation and crimp corporate earnings - potentially signaling the ebbing of the global growth cycle.

Investor selling turned disorderly in several regional markets, pushing down benchmark indexes in Indonesia by 6.3%, Singapore by 3.3% and India's Sensex by 3.77%.

"A lot of hedge funds are very active lately; I think it is a mass retreat from equities markets," said Louis Wong, director of Philip Securities Asset Management in Hong Kong.

"People are now starting to ask questions whether the bull run has ended or whether this is another correction. I would tend to adopt the view that it is a correction after the recent rally, but the sell-off is a bit more drastic than people expect," he added.

Tokyo's Nikkei Average slumped 114.87 points, or 0.69%, to 16,486.91, a two-month low, as the yen fetched eight-month highs against the dollar for much of the session.

The more inclusive Topix index slid 6.37 points, or 0.38%, to 1,681.81, its lowest finish since March 23.

The benchmark Shanghai Composite Index, which tracks both A and B shares, ended up 3.8% at 1664.088, its highest closing level since April 20, 2004. The Shenzhen Composite Index ended up 3.5% at 403.373.

The U.S. dollar traded as low as 7.9972 yuan on the over-the-counter market early Monday, down from its closing level Friday of 8.0061 yuan.

"It is a step in that trend where we know the mainland will have to give in, and eventually there will be a revaluation," said Andrew Clarke, a sales trader with S.G. Securities in Hong Kong.

"It helps to enforce people's convictions they are right in going along with H shares. If the yuan went to six per dollar, what that would mean is that all these companies are making an extra 25% in U.S.-dollar terms," he added.

Clarke said he expects the yuan to trade at parity with the Hong Kong dollar by the end of the year, a level equivalent to 7.8 per dollar.

In early London trading, the U.S. dollar was at 110.37 yen, recovering from the 109-yen level in the Tokyo session, where it briefly touched a fresh eight-month low of 109.46. The Japanese currency was quoted at the 110 level late Friday in New York.

Elsewhere across the region, shares in Singapore, Australia and Taiwan were sharply lower.

South Korea's Kospi index ranked as the lead declining regional market, falling as much as 2.6%. Hong Kong's Hang Seng Index was down as much 1.8% to 16,595.58.

Japanese auto makers end lower

Japanese auto makers, which depend heavily on North American sales, were sharply lower. Honda Motor (7267)
HMC, +1.02%
finished down 1.1%. Toyota Motor (7203)
TM, +0.14%
fell as much as 1.9%.

Shares of Softbank (9984)
SFTBF, -0.77%
gained as much as 2.6% after reports Friday by the Japanese Nikkei newspaper that the Internet company was working with Apple
AAPL, +1.63%
to make iPod cellphones.

Despite the sell-off among real estate developers, Daiwa Institute of Research maintained its positive outlook on the sector, saying it expects shares of big developers to perform well over a six-month view.

Index heavyweights HSBC Holdings (5)
HBC, +0.29%
tumbled 2.34%, while China Mobile (941)
CHL, -0.28%
slipped 3%. Traders said the heavy toll on blue-chip shares was related to preparations for the huge IPO for Bank of China due early next month.

In Asian electronic trading, crude oil futures fell, with the June contract down 0.76 cent to $71.28 a barrel.

Japan data points to inflation

Japanese wholesale prices increased 2.5% in April from the same period a year earlier, the Bank of Japan said Monday. The gain marks the 26th monthly increase in the corporate goods price index (CGPI) and exceeded expectations of a 2.3% rise. The BoJ attributed the April rise to higher prices for petroleum, coal and nonferrous metals such as copper. Crude oil and coal costs are up 18.4% while industrial metals have spiked 44% in the past year, the BoJ said.

The data confirm growing worries that high energy costs and industrial-metals prices will lead to more inflation and interest-rate hikes, potentially crimping corporate profits and consumer spending. The Japanese report is also a precursor to U.S. producer and consumer price data due Wednesday. See full story

In other news, Japan' s current-account surplus rose 3.9% in fiscal 2005 to 18.92 trillion yen ($173 billion) from a year earlier, the Finance Ministry said Monday.

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